Unforeseen Contingencies

Where there is no market economy, the best-intentioned provisions of constitutions and laws remain a dead letter. Ludwig von Mises

Resistance to tyranny is obedience to God.
Thomas Jefferson

I was once asked by an advocate of citizen disarmament what I thought of 'gun control,' ... as I framed my answer, he added, 'Give me the short answer.'
'Okay,' I answered, 'if you try to take our firearms we will kill you.'
Mike Vanderboegh

Friday, May 30, 2008

Boycott China?

A good friend of mine just sent an internet chain letter he received, and requested I comment on it. Does it make sense, and could it work? Typically I have no time for these sorts of things, but this one raised a number of interesting issues. The chain letter:

"Do you want to send a message to China?

Are we Americans as dumb as we appear or is it we just do not think? While the Chinese, knowingly and intentionally, export inferior products and dangerous toys and goods to be sold in American markets, the media wrings its hands and criticizes the Bush Administration for perceived errors. Yet 70% of Americans believe that the trading privileges afforded to the Chinese should be suspended. Well, duh..why do you need the government to suspend trading privileges? DO IT YOURSELF!

Simply look on the bottom of every product you buy, and if it says 'Made in China' or 'PRC' (and that now includes Hong Kong), simply choose another product or none at all. You will be amazed at how dependent you are on Chinese products, however you will be equally amazed at what you can do without. Who needs plastic eggs to celebrate Easter? If you must have eggs, use real ones and benefit some American farmer. Easter is just an example, the point is. do not wait for the government to act. Just go ahead and assume control on your own.

If 200 million Americans refuse to buy just $20 each of Chinese goods, that's a billion dollar trade imbalance resolved in our favor...fast!! The downside? Some American businesses will feel a temporary pinch from having foreign stockpiles of inventory.

The solution?

Let's give them fair warning and send our own message. We will not implement this UNTIL June 4, and we will only continue it until July 4. That is only one month of trading losses, but it will hit the Chinese for 1/12th of the total, or 8%, of their American exports. Then they will at least have to ask themselves if the benefits of their arrogance and lawlessness were worth it.

Remember, June 4 to July 4.

Send this to everybody you know.

Show them we are Americans and NOBODY can take us for granted. If we cannot live without cheap Chinese goods for one month out of our lives, WE DESERVE WHAT WE GET!

Pass it on America!"

Well, what do I make of this? Three sets of points seem relevant.

First of all, unlike most email schemes, if this one were actually to come to fruition and led to a boycott, it would have some sort of noticeable effect. Never mind that anonymous email chain letters are a very unlikely way of organizing a successful boycott. Never mind that the numbers quoted are all wrong (200 million X $20 ea. = $4 billion, this is much less than American monthly imports from China, and since imports aren’t evenly distributed throughout the year, exactly 1/12 of annual imports rarely if ever occur in a single month). Regardless, a successful boycott would have effects of some sort. But there’s a great deal that is fundamentally confused about this approach to dealing with America’s "China problem."

Second, blaming China for knowingly exporting bad quality stuff isn't quite right; the Chinese government has been cracking down on and even executing officials, including the head of China's FDA, for producing and selling defective goods. China's problem is corruption rather than official policy, and it kills many more Chinese than it does foreigners. The results for the Chinese themselves are often terribly tragic, as when a family’s one child is poisoned by bad medicine. The Chinese are probably more familiar and far angrier about this problem (inferior goods) than Americans are, and the national government is worried about domestic harm as well as the damage it could do to China's exports.

And frankly, most Chinese goods are perfectly serviceable. It’s an exaggeration to suggest all Chinese goods are junk; for some classes of goods, Chinese products are among the best (e.g. athletic shoes, certain medical equipment, some electronics). Perhaps consumers still might prefer rejecting Chinese goods, but it would require an intentional boycott, because most Chinese goods deliver sufficient quality for the price; that’s why people buy them.

Third, the idea of boycotting China is somewhat interesting to me, not because I think it is a good idea, but because I wonder if the average American realizes what it would mean. If we completely boycotted China, we’d also be effectively cutting the other side of the balance of payments. China is actually accelerating its acquisitions of U.S. debt and dollar-denominated assets, while much of the rest of the world seems to be slowly cutting back. This means that (1) China is propping up the value of the U.S. dollar, and (2) China is doing the lion's share of work in financing our federal deficits.

Point (1) means that without China, the U.S. the dollar would drop faster than it currently is. Among other things, since petroleum is priced in dollars, this would mean we'd see even higher oil prices than we do. Everyone wants that, right?

An implication of point (2) is that without Chinese loans, our federal government borrowing would crowd out much more private borrowing than it currently does, driving interest rates up. Since a very large percentage of Americans themselves use credit to pay for daily consumption, this would mean belt-tightening and financial difficulties for many Americans. The Fed could push interest rates back down to combat this (as Fed Chairman Bernanke is doing now) but this would further worsen inflation and the weakening of the dollar against other currencies. Or maybe we could cut government spending, or raise taxes, or both. Most Americans seem to find all of these alternatives unacceptable, so their opposition to trade with China seems a little misplaced.

In fact, it is a somewhat dangerous situation, for both the U.S. and China. China faces increasing currency risk. They (mostly People's Bank of China) hold a bit more than $1.5 trillion in dollar assets, and at current rates of acquisition it might be closer to $2.5 trillion by the end of the year. A 10% drop in the dollar means losses of $150-250 billion. These would be big losses for the U.S., never mind a third world economy. This is not in the interest of either China or the U.S. The irony is that the dollar has dropped as a result of our subprime fiasco, and since China has simultaneously accelerated its purchases of dollar assets, it's poor Chinese citizens who are ultimately helping finance things like the Bear-Stearns bailout!

A gradual winding down of this tangled mess would be a good idea: the U.S. needs to get its spending under control, the Chinese need to better control their finances as well. China has built an economy that is overly dependent on foreign markets, at a cost to domestic consumption. They are lending elsewhere as well, not just the U.S. This seems to have begun as a way to suppress appreciation of their currency, to help foster exports, and now, in my view, is an attempt to keep the house of cards standing. China needs to build its domestic economy, so as to reduce its dependency on foreign markets (China is quite vulnerable if there's a bad U.S. and European recession), and to increase living standards for the average Chinese.

Similarly, if Americans were to bite the bullet and say "OK, let's stop living on credit" it would be a very good thing, quite painful in the short run, but beneficial in the long run. The "boycott China" approach effectively entails this, albeit without conscious intent. Of course, Americans could return to fiscal and monetary responsibility without a China boycott. Inexpensive goods from China aren't a bad thing, and most goods aren't substandard. It's not that trade, credit, borrowing, and the like are inherently bad...obviously they aren't. It's fiscal and monetary irresponsibility that are the fundamental problems, in both countries, and that lead to unsustainable trade and credit scenarios. Sound money and fiscal responsibility would be a nice start.

To the average American, this analysis would likely seem completely unfamiliar: no discussion of outsourcing or alleged job loss, no discussion of "China outcompeting us," nor any other mercantilist nonsense. Serious analysis reveals that the U.S. and China actually have common interests, and are caught together in a financial tangle that threatens both. It would be much easier for both countries to extricate themselves with some sort of coordinated effort, but it is so much easier for demagogues in each country to scapegoat the other country, and populations in both countries love to hear that their problems are really caused by nasty foreigners. Phony patriotism trumps reason every time, unfortunately.

Monday, May 26, 2008

"Anarchists" for Borders?

The border is a creation of the state, a limit beyond which the state tends not to extend its power. When it does so, it tends to be extraordinary circumstances (war, "extraordinary" rendition, etc.) The state, and its assumed authority, actions, and services stop at the border, the limits of its jurisdiction. Borders define the geographical limits of the state, and are created and enforced by states.

The border is something different from a property line. A property line is a boundary that defines the geographical extent of ownership. Property lines can, and often do, cross political borders. The two concepts are entirely different. I guess all that is obvious to most of us.

Hence it’s quite strange that self-professed "anarcho-capitalist" Walter Block rails against Médecins Sans Frontières (MSF, a.k.a. Doctors Without Borders), Reporters Sans Frontières (RSF, a.k.a. Reporters Without Borders), and the like. Is there something objectionable about providing emergency medical help to impoverished refugees, victims of natural disasters, and the like? Is Block doubtful about freedom of the press, or the rights of journalists to write and speak freely without being arrested or killed for doing so? Apparently so.

Block’s real beef seems to be that these groups don’t think state borders should define the limits of press freedom, or where they give medical care to the suffering, and the like. It’s simply bizarre that an alleged anarcho-capitalist libertarian should have such a high regard for the arbitrary divisions that states place on us, and speak out against those who don’t share his regard. Some "anarchist."

Block’s argument continues, and maintains that these organizations, and apparently any that affix "Without Borders" to their name, are inherently associated with "leftish political philosophy in general, and with support for world government in particular." And what is his evidence for this? He continues, "I have a confession to make. There is nary a word, heck, there is not a single solitary explicit indication linking any of these 'Without Borders' groups to the world government philosophy. Nada, not one. But, I am involved here in an exercise in verschtehen (sic), not empirical evidence mongering."

So in other words, he just made it all up. Some "researcher."

*Sigh* ...just one more example of crazy, bilious rambling from the LvMI. Mises rolls in his grave.

Sunday, May 25, 2008

A Conversation Between Two "Poets"

Editor's note: Unforeseen Contingencies is honored to be able to present to you a guest post by Nathalie Vogel, political scientist, libertarian, Atlanticist, and expert on contemporary Russia. We hope to post more commentary from Nathalie Vogel in the future.

For those who don't know, Eduard Limonov is the founder of Russia's facist New Bolshevik Party. And we all know who Radovan Karadzic is.

A Conversation Between Two "Poets"

By Nathalie I. VOGEL

There was a time when France greatly benefited from Russian brain-drain. Well, it certainly stopped the day a creature named Eduard Limonov received his French passport. The problem with Limonov, apart from the great amount of vulgarity that emanates from his "literature" and the nonsense he produces elsewhere, is that having been a victim of the Putin-regime, he has turned into some kind of an icon of free speech. Thanks to Putin, Limonov is now "untouchable" and a real "intellectual". In a world where Limonov is a democrat, anyone is free to worship Lenin for initiating genocides ...and anyone may even court people like Karadzic who are on the wanted list of the Hague Tribunal. Yes, in a world where Limonov is a respectable person, anything goes...

Wednesday, May 21, 2008

Libertarian means “libertarian”

Update 25 May 2008: the photo illustrates the new face of the Libertarian Party. The LP's presidential candidate, populist-conservative Bob Barr, vows to aggressively shut down the borders. The photo shows a few of the victims of the recent ICE raid in Postville Iowa. They were arrested because their "dokyumenti" weren't in order.

The "Libertarians" will now be free to start making their case for building walls around the country, shutting down free trade, discriminating against gays, and the like. No "purism" will taint this campaign. I wonder how they'll excuse Barr's racist connections?

I’ve just emailed a letter to the twenty-five members of the Libertarian party National Committee (including, somewhat ironically, the Region 4 Representative, Bob Barr). Here’s the letter:

Dear LP friends,

In every presidential election beginning 1976 I have voted for the Libertarian Party presidential candidate. I've done so proudly, because every one of the LP candidates was a libertarian. Some of the candidates were much better than others, but every one of them was a consistent supporter of individual liberty, so I was proud to vote for them.

I believe the LP is now in danger of sacrificing its consistent support for individual liberty by nominating a conservative like Wayne Root, or even worse, Bob Barr.

Wayne Root tells us "Come to think of it, almost every social issue of our day is a States' Rights issue." http://www.rootforamerica.com/home/wherestands.php This is anti-libertarian nonsense: states do not have rights, and "social issues" are matters of individual rights, and not matters for whatever state political processes happen to choose.

I respectfully ask you to pick a genuine libertarian for the LP candidate, and not a "states-rights" conservative. I certainly will never vote for the likes of Barr or Root. The LP is the only remaining voice in American politics that speaks for consistent *individual* liberty. Please do not betray this proud and vital role.

Sincerely,Charles N. Steele, Ph. D.

Compromising on fundamental principles in order to make short run political advantage is a terrible thing. And it’s a stupid thing, if the "advantage" is as miniscule as a Barr or Root candidacy would provide. I hope the LP does the right thing and resoundingly rejects these "states rights" conservatives and picks a genuine libertarian to run. How about an all-woman ticket of Dr. Mary Ruart and Christine Smith?

If you’d like to send your own message, here is the LPNC contact info. For maximum persuasiveness, be sure to be direct, clear, and polite.

Friday, May 16, 2008

My Message to Bob Barr

The Libertarian Party is in jeopardy of being taken over by anti-libertarian conservative bigots. I've never voted for a Presidential candidate other than the LP candidtae. Some were good, some were a bit questionable, but all were libertarians. But now the "party of principle" appears to be on the verge of abandoning its principles and nominating a supporter of big government such as Bob Barr or Wayne Allen Root.

This will do terrible damage to the cause liberty. It will contribute to the destruction of the term "libertarian," by making it equivalent to "bigot in constitutionalist clothing." The ideal of individual liberty is difficult to kill head on; far easier, as Mises and Hayek pointed out, to pervert language so that a key concept is lost.

I did go to Barr's website and sent him an email message urging him to drop out. Here's the message:

"You are not a libertarian. Core libertarian positions include open borders, equal rights for gays, an end to the criminalization of drugs. Your association with the KKK front group Council of Conservative Citizens is abominable. You're anti-libertarian. Get out of the race now!

Sincerely,Charles N. Steele, Ph.D."

I forgot to mention his consistent anti-free-trade position. What a dreadful statist he is!

Tuesday, May 06, 2008

How to characterize Hillary?

I’ve been away for a bit, and this will continue for another week or two, owing to various contingencies, foreseen and otherwise. With the end of the semester I’m really too busy to be writing this, but Hillary is crowing victory in Indiana (here’s hoping she’s wrong) and going on with her federal gas tax plan.

What are we to say of this plan, and what does it tell us about Hillary?

The plan: stop placing the tax on consumers, and put it on the producers (you know, those nasty people who do us the disservice of working to provide us with gasoline). This will give consumers a break, and punish the producers, for... umm, doing us the disservice of working to provide us with gasoline? Well, anyway...

This is a textbook example - literally. What happens when a per unit tax is shifted from buyer to seller, from demand curve to supply curve? Answer: nothing. These are identical in their effects on raising prices to consumers, reducing prices to sellers, and reducing quantity sold.

As I walked into my last class of the term, my students were discussing this among themselves and making fun of the plan; they mentioned it to me and asked my opinion.

"Look, anyone who has had Econ 101 knows this is nonsense. Rest assured that Hillary’s advisors are familiar with Econ 101, and I am pretty sure Hillary herself understands that this is nonsense."

"So you’re saying Hillary is evil?"

Good question.

Well, let’s look at it. The Econ 101 analysis isn’t the full story. Frankly, Hillary’s "plan" is more idiotic than it might seem from the blackboard econ perspective, because it is proposing the status quo! The federal gasoline excise tax is already levied on producers, not consumers. As the Congressional Research Service puts it, "the gasoline excise tax [i]s a ‘manufacturer's excise tax’ because the government imposes it at production (i.e., the producer, refiner, or importer)." People who are impressed with her plan are simply ignorant. The "Hillary plan" is already in effect.

In other words, Hillary is knowingly, cynically playing on voters’ ignorance. My students are right, and have Hillary pegged.